Russia's Medvedev says global crisis not over yet

By IBT Staff Reporter On 06/05/09 AT 11:47 AM

ST PETERSBURG, Russia - Russian President Dmitry Medvedev, opening the country's top business forum, said on Friday the global economy had avoided the worst but warned participants it was too early to celebrate recovery.

In my view, it is too early to crack open the champagne, Medvedev said in opening remarks to the St Petersburg International Economic Forum attended by global chief executives and top officials.

The financial crisis is a multi-year plant capable of surviving for a long time...Nonetheless I think we have avoided the worst-case scenario.

The global financial crisis has hit Russia harder than any other big emerging market but Medvedev said in generally sober remarks that the country had stabilized its financial system and followed appropriate policies.

His remarks were devoid of the bombast and exuberance which characterized last year's Forum, when global oil prices were riding high, Moscow's coffers were full and the economy was growing rapidly.

Medvedev used the speech to restate Moscow's priorities in reform of the international economic order, including a bigger role for the rouble as a regional reserve currency, the development of Moscow as an international financial center and the creation of a supranational reserve currency.

This, he said, could be based on the International Monetary Fund's Special Drawing Rights (SDRs) but the role of gold in the global currency system should also be re-assessed.

The Kremlin chief conceded that major challenges still remained for Russia, though he did not announce any specific new initiatives.

For us the main problem is inflation, which we have been unsuccessfully battling for years, Medvedev said, referring to Russia's inability to bring annual price rises below double-digit levels.

For America and Europe, inflation is now less topical than deflation...But we cannot exclude events developing in such a way that even the dollar could be subject to fairly strong inflationary influence.

The president defended Russia's heavy spending of foreign exchange reserves late last year to manage a gradual devaluation of the rouble, saying the relative stability of the currency today proved that it was the right policy.

Challenges remained with bad loans, he added.

In the short term, it is key for Russia, as well as for other countries, to clear bad assets from the banking system, Medvedev said.

But he ruled out following the example of some other major economies in parking bad assets in a single state-controlled institution or bad bank.

We will use other instruments to solve this problem including...investing state funds into their capital if needed.

The Kremlin chief said the crisis had shown Russia's excessive dependency on the exports of oil and other raw materials and its under-developed financial system.

As a result, the country urgently needed to step up efforts to diversify, otherwise it could face a worse crisis in the future.

Medvedev also called for Russia to redouble efforts to attack corruption, a drive he has repeatedly emphasized since taking office last year.

An economy that is infested with corruption, in which inefficient bureaucracy dominates, is incapable of modernization, Medvedev said.

The Russian leader called for an active middle class to form the backbone of a Russian society which would favor active, competing businessmen.

This is what we now desperately need, Medvedev said. This is the kind of success we would like to see in several years time.